Of course the 50p top rate of income is more important for its symbolism than its efficacy. So the super-rich should stop griping and thank their lucky stars that the last Labour government lacked the political courage required to reintroduce genuinely progressive taxation.

If only they would count their blessings instead of counting their money, they would realise that the current arrangements represents a brilliant public relations coup on their behalf. For a somewhat modest outlay, the artificial impression is created that they are pulling something approximating their weight.

Nevertheless, it looks as if the 50p band is on the way out. The Liberal Democrats, we read this morning, have dropped their opposition to seeing it scrapped, leaving the the rest of us wondering how strongly the principle was ever cleaved to anyway.

Such timidity will be warmly welcomed by the noisy lobby that has become increasingly obsessed with this issue in recent months. Yet the case they make against it is notable for its incoherence.

The first main argument advanced is that the 50p rate doesn’t actually raise any money, but rather simply leads to more efficient tax avoidance. In that case, what’s the problem?

In point of fact, it does appear to raise money. The Treasury estimates that it will pull in £2.7bn in 2012-13, which works out at something like £50 a head for every man, woman and child in Britain.

That is not a fortune, of course. But it is better than nothing, and if the government doesn’t find that sum from the wealthy, it will have to find it from the not so wealthy.

The second typical ground for opposition is the idea that the £150,000 threshold somehow stifles enterprise and wealth creation. That also is nonsense.

Higher taxation on the top 1% of earners does not deter anybody from setting up a local restaurant or window cleaning business. Few such small scale entrepreneurs have any realistic hope of pulling down £150,000 a year, ever.

The handful that do can channel revenue through their companies, leaving it subject to capital gains tax at 20% rather than income tax at any level. Isn’t that right, Ken Livingstone?

Conversely, most people on salaries of £150,000 or more are neither entrepreneurs nor wealth creators. Usually they work in the City, where they speculate using wealth in the main created by the efforts of working people, or have risen up the management ladder in established multinationals.

And despite all the overblown claims that this ostensibly punitive taxation regime would spark a mass exodus of City Boys, this clearly has not happened. Only a small handful have upped sticks. The overwhelming majority have elected to stay in Britain, which remains a country in which a strongly Friedmanite government is dedicated to helping them rake it in hand over fist.

Many of them have accumulated fortunes so immense that 50p rather than 40p is so much small change. It represents just another overhead cost of living in London, much along the lines of the extortionate price of upmarket accommodation.

Clawing back some of the spectacular giveaways doled out to the wealthy under successive governments since 1979 is entirely justifiable.

An effective income tax policy would see them pay rather more than what they are getting away with right now.

Reader comments

So after telling us we are all in this together and cutting for the poorest people we have tax cuts for the richest. How predictable. And once again the idiot Lie Dems get p played like the fools they are. Still, we can watch the lib dem politicians doing some more waffling, and looking for their consciences again. Not a pretty site.

@OP, Dave Osler: “Of course the 50p top rate of income is more important for its symbolism than its efficacy.”

Signifying is important. Even Sally understands that argument: “So after telling us we are all in this together and cutting for the poorest people we have tax cuts for the richest.” And on this occasion, she is about right.

Reducing the top tax rate from 50% to 40% does not change people’s behaviour significantly. Possibly it means that a few people do not feel the need to employ an accountant. It will not change the aspirations of business owners who wish to have a million quid in the bank.

50% tax rate signifies that “we are all in this together”. Cutting the rate implies that some citizens are “less in this together” than others.

What I find most strange about this article is that it refers to the government in the context that it is somehow some ship that has to be kept afloat by taking money from its citizens. That doesn’t sound very free, democratic or fair no matter where you are on the income scale.

As for this ridiculous statement that the ‘rich must pay their fair share’…they already do. The top 10% pay 28% of income tax despite receiving only 17% of the income. Sounds mighty unfair actually, and looks like the rich are picking up a huge amount of the bill for public spending. Spending which I might add is terribly inefficient.

Of course the 50p top rate of income is more important for its symbolism than its efficacy. So the super-rich should stop griping and thank their lucky stars that the last Labour government lacked the political courage required to reintroduce genuinely progressive taxation.

So it is about sticking it to the Man rather than revenue raising? I would call that childish myself. But different strokes and all that. What would a genuinely progressive taxation system look like? Given that income tax disproportionately falls on the wealthy? How is the present system not merely progressive, but genuinely so?

For a somewhat modest outlay, the artificial impression is created that they are pulling something approximating their weight.

In what sense are they not pulling something like approximately their weight? How much money would they have to pay to be, in your words, pulling their weight?

The first main argument advanced is that the 50p rate doesn’t actually raise any money, but rather simply leads to more efficient tax avoidance. In that case, what’s the problem?

Well, everything. Obviously.

That is not a fortune, of course. But it is better than nothing, and if the government doesn’t find that sum from the wealthy, it will have to find it from the not so wealthy.

Or, and this might just be a little bit of out-there thinking, they could cut spending a little?

Higher taxation on the top 1% of earners does not deter anybody from setting up a local restaurant or window cleaning business. Few such small scale entrepreneurs have any realistic hope of pulling down £150,000 a year, ever.

I would doubt many people would consent to run a restaurant for less than £150,000 a year, but perhaps it is so. However you miss the point – if this tax leaves rich people with less money to spend, if it causes more people to take early retirement or to move to Switzerland, then there will be fewer people splashing their cash around local restaurants. Which means more of them will close. Which means more people will be out of work. Which means the local butcher, baker and candle stick maker will have less money. Which means some of them will close and so on. A deflationary spiral in fact. Not sensible.

Conversely, most people on salaries of £150,000 or more are neither entrepreneurs nor wealth creators. Usually they work in the City, where they speculate using wealth in the main created by the efforts of working people, or have risen up the management ladder in established multinationals.

So you do not understand how the City works? Fine. You are in no position to comment then really are you?

And despite all the overblown claims that this ostensibly punitive taxation regime would spark a mass exodus of City Boys, this clearly has not happened.

Yet. Moving takes time. They have clearly tried lobbying first – and that seems to be working. But what do you think would happen under a “genuinely progressive” taxation system?

It represents just another overhead cost of living in London, much along the lines of the extortionate price of upmarket accommodation.

Housing is an investment, not an overhead cost.

Clawing back some of the spectacular giveaways doled out to the wealthy under successive governments since 1979 is entirely justifiable.

There were no give-aways to the wealthy since 1979. Rather getting off their backs enabled them to generate huge wealth that has made everyone in the UK roughly twice as rich as they were.

An effective income tax policy would see them pay rather more than what they are getting away with right now.

Given you admit they would avoid it and it is just a gesture anyway, in what sense would it be effective?

‘most people on salaries of £150,000 or more are neither entrepreneurs nor wealth creators. Usually they work in the City, where they speculate using wealth in the main created by the efforts of working people’

Be interested to see the data on this.

There are of course people who dont work in the City but nontheless work extremely hard to get where they are. My experience is that people are not incentivised by work ,which generally is monotonous and boring (even if it didnt start that way) The more the prospect of reward the harder people work.

‘However you miss the point – if this tax leaves rich people with less money to spend, if it causes more people to take early retirement or to move to Switzerland, then there will be fewer people splashing their cash around local restaurants. Which means more of them will close. Which means more people will be out of work. Which means the local butcher, baker and candle stick maker will have less money. Which means some of them will close and so on. A deflationary spiral in fact. Not sensible.’

I think you’ll find that the propesity for spending is greater, the more distributed the income. Any redistributive effort which puts more money in the hands of those more likely to spend it is obviously a good way to re start the economy.

Utter rubbish! Social stratification is very static within the Western world. Evidence suggests that for Countries where income distributions are extreme the poorer will stay poor over generations. Similarly up the scale. You are literally defined to a class at birth with few exceptions.

“The first main argument advanced is that the 50p rate doesn’t actually raise any money, but rather simply leads to more efficient tax avoidance. In that case, what’s the problem?”

Well, quite. A screamingly obvious question that rarely gets asked.

If higher tax rates really promoted successful tax avoidance as efficiently as right-wingers claim, they should be supporting higher tax rates as a means of reducing the de facto tax burden on ‘wealth creators’ and thereby promoting investment and growth.

“The first main argument advanced is that the 50p rate doesn’t actually raise any money, but rather simply leads to more efficient tax avoidance. In that case, what’s the problem?”

It’s probably better to understand and deal with the arguments that are advanced against having high marginal tax rates. When people say that they do not raise revenue they do not always mean that some people will not be paying more tax. With the 50p rate some people ( micro ) will undoubtedly be increasing revenue for HMRC by paying more in tax than they would at 40p. However, the argument is that this lowers the potential output of the economy ( macro ) through the deadweight costs of taxation etc. The lower macro output results in lower revenue for HMRC than what would pertain if the economy was operating at its potential output.

How is our growth rate doing at 50%, compared to our growth rate at 40%? The tax rates may have nothing to do with our anaemic performance. On the other hand, we know all tax with the exception of LVT carry deadweight costs. So all tax rates must have some effects on the macro economy. What we do know is that the UK economy is operating some way below its potential and that is the argument advanced that 50% may be costing HMRC revenue. One does not have to accept the simplistic versions of the argument to understand what people are actually saying. Personally, I think high production taxes in the UK do more damage to our potential output than marginal tax rates on income. When one breaks down GDP across the EU economies. The UK has one of the highest proportions of GDP that goes to wages. They also have one of the highest proportions of GDP that goes to production taxes. As a consequence, UK proportion of GDP that goes to profits is one of the lowest in the EU. No surprise that this empirical data fact is almost the exact opposite of what many on the UK left believe.

[…] it has brought in revenue and if properly enforced could potentially bring in significantly more. Dave Osler over at Liberal Conspiracy demolishes the intellectual case of the right in just a few se… Most ‘entrepeneurs’ wouldn’t have been effected on the rate in the first place. It is a tax […]